The NRA Says It’s in Deep Financial Trouble, May Be ‘Unable to Exist’ (#GotBitcoin?)
The National Rifle Association warns that it is in grave financial jeopardy, according to a recent court filing obtained by Rolling Stone, and that it could soon “be unable to exist… or pursue its advocacy mission.” (Read the NRA’s legal complaint at the bottom of this story.) The NRA Says It’s in Deep Financial Trouble, May Be ‘Unable to Exist’
The reason, according to the NRA filing, is not its deep entanglement with alleged Russian agents like Maria Butina. Instead, the gun group has been suing New York Gov. Andrew Cuomo and the state’s financial regulators since May, claiming the NRA has been subject to a state-led “blacklisting campaign” that has inflicted “tens of millions of dollars in damages.”
In the new document — an amended complaint filed in U.S. District Court in late July — the NRA says it cannot access financial services essential to its operations and is facing “irrecoverable loss and irreparable harm.”
Specifically, the NRA warns that it has lost insurance coverage — endangering day-to-day operations. “Insurance coverage is necessary for the NRA to continue its existence,” the complaint reads. Without general liability coverage, it adds, the “NRA cannot maintain its physical premises, convene off-site meetings and events, operate educational programs … or hold rallies, conventions and assemblies.”
The complaint says the NRA’s video streaming service and magazines may soon shut down.
“The NRA’s inability to obtain insurance in connection with media liability raises risks that are especially acute; if insurers remain afraid to transact with the NRA, there is a substantial risk that NRATV will be forced to cease operating.” The group also warns it “could be forced to cease circulation of various print publications and magazines.”
In addition to its insurance troubles, the NRA court filing also claims that “abuses” by Cuomo and the New York State Department of Financial Services “will imminently deprive the NRA of basic bank-depository services … and other financial services essential to the NRA’s corporate existence.
The lawsuit presents these financial risks as catastrophic. Without access to routine banking services, the NRA claims, “it will be unable to exist as a not-for-profit or pursue its advocacy mission.” The lawsuit accuses New York’s government of seeking to “silence one of America’s oldest constitutional rights advocates,” pleading to the court: “If their abuses are not enjoined, they will soon, substantially, succeed.”
The lawsuit stems from actions taken by New York financial regulators to halt the sale of an illegal, NRA-branded insurance policy. The NRA actively marketed “Carry Guard,” a policy to reimburse members for legal costs incurred after firing a legal gun. In May, the state of New York found that Carry Guard “unlawfully provided liability insurance to gun owners for certain acts of intentional wrongdoing.” The NRA’s insurance partners agreed to stop selling the policies and pay a $7 million fine.
The NRA complaint alleges that New York was not content to block this single insurance product, but instead campaigned to sever the NRA’s ties to a wide range of financial service providers, from insurance companies to banks.
The NRA did not respond to a request for more detail about its financial distress, but its most recent financial disclosure also shows it overspent by nearly $46 million in 2016.
The lawsuit decries pressure from state regulators in the wake of the Parkland, Florida massacre — including a letter asking financial institutions to heed “the voices of the passionate, courageous, and articulate young people who have experienced this recent horror first hand” — and from the governor himself. In April, Cuomo tweeted: “I urge companies in New York State to revisit any ties they have to the NRA and consider their reputations, and responsibility to the public.”
In its complaint, the NRA paints these actions as a “malicious conspiracy to stifle the NRA’s speech and induce a boycott of the NRA.” Cuomo and state regulators, the NRA alleges, were intent on “suppressing the NRA’s pro-Second Amendment viewpoint” and had engaged in “unlawful conduct with the intent to obstruct, chill, deter, and retaliate against the NRA’s core political speech.”
In the filing, the NRA reveals that its longtime insurer broke off negotiations this winter and “stated that it was unwilling to renew coverage at any price.” [Emphasis in original.] The NRA claims it “has encountered serious difficulties obtaining corporate insurance coverage to replace coverage withdrawn.” In addition, the NRA contends that “multiple banks” have now balked at doing business with it “based on concerns that any involvement with the NRA — even providing the organization with basic depository services — would expose them to regulatory reprisals.”
The lawsuit seeks an immediate injunction to block state authorities from “interfering with, terminating, or diminishing any of the NRA’s contracts and/or business relationships with any organizations.” Without court intervention, the complaint reads, “the NRA will suffer irrecoverable loss and irreparable harm if it is unable to acquire insurance or other banking services due to Defendants’ actions.”
Cuomo also did not respond to a request for comment, but has previously waved off the NRA’s lawsuit as “a futile and desperate attempt to advance its dangerous agenda to sell more guns.”
NRA’s Carry Guard Insurance Violates New York Law; Broker Agrees to $7 Million Fine
New York financial regulators said on Wednesday that a controversial insurance program offered by the National Rifle Association violates state law, and they have levied a multi-million dollar fine on the company that administers it.
In a Wednesday announcement, the New York State Department of Financial Services said the NRA’s Carry Guard program “unlawfully provided liability insurance to gun owners for certain acts of intentional wrongdoing,” and that the group solicited coverage to New York residents without a license from the state. Lockton, the world’s largest privately held insurance brokerage, has agreed to pay the state $7 million for the violations, and will terminate Carry Guard policies held by New Yorkers.
Department of Financial Services Superintendent Maria T. Vullo described the conduct as “an egregious violation of public policy.”
The NRA launched Carry Guard to great fanfare in the weeks leading up to the group’s 2017 annual meeting in Atlanta. Carry Guard offers customers liability insurance in the event of a self-defense shooting, ranging up to $150,000 in criminal-defense reimbursement and $1 million in a civil-liability protection. Members also get a 24-hour advice hotline and immediate access to money for bail and the costs of cleaning up the scene.
Lockton administered Carry Guard’s marketing and distributing policies. The program was formerly underwritten, or designed and priced, by the insurance giant Chubb, which ceased its involvement earlier this year.
The NRA aggressively promoted Carry Guard to its members, giving the program a splashy debut at its annual meeting last April in Atlanta. The NRA gave Carry Guard a standalone website and advertised the product through email, YouTube, and social media. Some of the promotions featured the NRA personality Dana Loesch. Another came with this pitch to prospective clients: “You should never be forced to choose between defending your life…and putting yourself and your family in financial ruin.” The message concludes: “Sign up for NRA Carry Guard today!”
Carry Guard also includes a training program, designed to teach gun owners how to “effectively confront today’s evolving conflict environment.” As The Trace has reported, the program drew backlash from gun instructors, who argued that its emphasis on military tactics could encourage a dangerous mentality among civilians. “Civilians using military tactics will get you in trouble really fast with the law, if not dead,” read a blog post by Robert Boilard, an NRA-certified instructor from New Hampshire.
According to the Department of Financial Services, the NRA issued 680 Carry Guard policies to New York residents between April and November 2017.
New York regulators launched an official investigation into the NRA’s insurance practices in the state in the fall of 2017. No insurer can provide criminal defense coverage in New York for a person charged with a crime involving firearm. And while state law permits groups like the NRA to put their names on insurance products and endorse them, it prohibits direct insurance salesmanship by unlicensed parties.
The Department of Financial Services deemed Carry Guard’s liability insurance for criminal proceedings improper. It also determined that the NRA had actively “marketed and solicited” the program without a license to do so.
As Carry Guard’s administrator in New York, Lockton agreed to pay a $7 million settlement.
“It is our responsibility to ensure we are fully compliant,” said Dean Davison, a Lockton spokesperson. “We believe this settlement is the best way to resolve these issues.”
Following the February mass shooting at a high school in Parkland, Florida, Chubb disclosed that it had decided not to renew its contract to underwrite the program. Lockton also stated its intention to no longer act as broker and administrator for Carry Guard.
“It’s a major step back,” Peter Kochenburger, the executive director of the Insurance Law Center at the University of Connecticut Law School, told The Trace’s Mike Spies in February. “To keep this going, the NRA will have to find another insurance company to underwrite this. It’s hard to imagine another publicly traded company, or a company like State Farm, stepping in.”
The National Rifle Association, facing a cash crunch after pouring money into Donald Trump’s presidential bid, cut spending for the midterm elections that threaten the Republican hold on Congress.
After devoting record sums to help elect President Trump in 2016, the powerful lobbying organization had a sharp decline in working capital last year. The NRA borrowed against life insurance policies on top executives and took out a loan from its philanthropic arm. It also turned to a regional bank to refinance a long-standing credit line that it had almost exhausted from Wells Fargo & Co.
Even after borrowing the money, NRA spending by its lobbying arm in venues like television and radio has plunged this year 86 percent to $1.9 million from the last midterm elections. When this outlay is combined with spending by the NRA’s political action committee, which raises money separately, the $16.4 million total is less than half of what they deployed in 2014. The retreat comes as mass shootings in Las Vegas, Parkland, Florida, and Pittsburgh have made gun control a hot-button political issue in the Nov. 6 elections.
Andrew Arulanandam, the NRA’s spokesman, said changes in the group’s so-called unrestricted net assets, used for political activity and other purposes, are typical and not an indication of waning support.
“Like many organizations, unrestricted assets may fluctuate from year-to-year based upon the needs of the organization,” Arulanandam said in an emailed statement. He added that with 5.5 million members, the NRA is at “the highest levels of membership in our 150-year history.” He declined to provide additional details.
The NRA PAC has focused its independent political spending on a number of Senate races. It has paid out $1.1 million to oppose incumbent Democrat Joe Donnelly in Indiana and almost $667,000 against incumbent Democrat Claire McCaskill in Missouri. It deployed nearly $683,000 in support of McCaskill’s Republican opponent, Missouri Attorney General Josh Hawley.
The gun rights movement can be seen as a victim of its own success. Trump’s victory in 2016 pushed off the threat of gun control from Democrats and firearms sales stagnated as potential customers no longer saw the need to stock up on weapons. That hurt gunmakers. Shares of Sturm Ruger & Co. are down about 12 percent since the November 2016 election compared with a 29 percent gain in the S&P 500 Index.
Two years ago, the NRA’s finances began to weaken after the lobbying arm put $34.5 million behind the candidacy of Trump and other Republicans. The group ran a $41 million deficit in 2016 as increased political spending and membership acquisition costs drove total expenditures to $419 million, according to the NRA’s financial statements.
Last year, the deficit grew by $21 million as revenue from contributions and membership dues sank. The $35 million decline in dues — the NRA’s largest source of unrestricted revenue — was particularly significant.
“The worst thing that happens to the gun rights movement is when they are successful politically,” said former NRA lobbyist Richard Feldman, who’s president of the Independent Firearm Owners Association.
By the end of 2017, the NRA had just $1.48 million of unrestricted assets, down from $65.6 million two years prior, according to the statements. The group warned of a potential funding shortage when it told members earlier this year that their annual dues would rise $5 in August, adding in the notice, “We simply can’t compete in the 2018 elections” without the increase.
Brian Mittendorf, an accounting professor at Ohio State University who studies the NRA’s financial statements, said the group does not appear to be facing an immediate fiscal crisis. But he said multiple years of declining net assets raise concerns: The organization will need to scale down its spending or find new sources of revenue.
The lobby last year turned to a form of credit it hadn’t used since 2011. It borrowed $3.5 million against whole life insurance policies it held as funding for a deferred compensation program for executives and employees, according to the statements.
The NRA also took the step of borrowing $5 million from its charitable foundation last November. While the foundation grants roughly $19 million a year to the NRA, that money can only be used for the same philanthropic activities that the charity supports.
The loan represents a way to “slip the bounds” of these charitable restrictions, said Marcus Owens, a partner at Loeb & Loeb and former director of the Internal Revenue Service division that oversees nonprofits. Under U.S. rules, the NRA has more leeway in how it spends its foundation loan as long as it bears interest at market rates and is repaid.
Wilson Phillips, who resigned in September as the NRA’s chief financial officer, described the foundation loan as “a very short-term deal” in an interview in January. NRA financial statements disclosed that its due date was extended from February until June. It remains outstanding, according to regulatory records.
The NRA pays an annual rate of 7 percent for the loan, making it relatively expensive compared with the floating rate of 2.16 percent for the Wells Fargo credit line last year, according to the statements. But the NRA had drawn $23 million on the credit line by the end of 2017, leaving little room for additional borrowings.
In September, the NRA refinanced its line of credit. While Wells Fargo had been renewing the $25 million line for roughly a decade, the NRA’s balance sheet appears to have weakened during the past several years. With the facility set to expire Sept. 30, the NRA switched to a new credit line with Access National Bank, securing it with 18 securities accounts at Morgan Stanley Smith Barney, according to a September filing.
Susan Budak, a consultant on nonprofit accounting who reviewed the NRA’s financial statements, said the group’s liquidity “has eroded. The biggest factor,” Budak added, “is they are pledging cash, investments and receivables as collateral for their borrowing.”
Access National provided the organization with a $3 million increase in the size of the credit line to $28 million, a person familiar with the situation said. Michael Clarke, Access’s chief executive officer, declined to comment on the NRA loan.
The NRA, which has managed through deficits before, won’t release new financial statements covering 2018 until next year.
The best outcome for NRA fundraising, said ex-lobbyist Feldman, would be success by Democrats election night.
“If the Democrats take the House, there will not just be gun control bills,” he said. “There will be hearings. It’s the kind of ink the NRA wants.”
NRA Awarded Contracts To Firms With Ties To It’s Own Top Officials
The payments total millions of dollars over several years, some of which the gun-rights group revealed in recent filings.
New filings from the National Rifle Association reveal that the gun-rights group directed millions of dollars over several years to people with close ties to the group, including former top officials.
A separate review of the NRA’s vendor relationships found other business arrangements that similarly benefit insiders.
The NRA Foundation, an affiliated nonprofit, paid millions of dollars to a company controlled by a former NRA president, the filings indicate. The NRA also paid nearly $1 million over two years to a retired NRA official through one of its longtime vendors.
The separate review found that a consulting firm hired by the NRA in turn employed the wife of an NRA executive, and another of its outside consulting firms is controlled by the NRA Foundation’s executive director.
The NRA and its representatives said there is nothing improper about any of its relationships. Where potential conflicts of interest arise—such as when the organization’s insiders stand to financially benefit from its vendor contracts—the audit committee of its board generally reviews and approves such transactions, the NRA said.
William A. Brewer III, an outside lawyer for the NRA, said the group “strives to comply with all applicable regulations” and has “appropriate processes and safeguards in place” to manage potential conflicts of interest.
Some of these relationships weren’t reported in the NRA’s filings until recently. The NRA, one of the nation’s largest and most influential nonprofit organizations, said in its filings and to The Wall Street Journal the omissions were inadvertent.
NRA supporters say the gun-rights advocacy community is fairly small, and the NRA ends up doing business with people it knows and trusts.
Some governance experts said it isn’t unusual to see one or two conflicts of interest in a large nonprofit like the NRA. A broader pattern is less common and raises questions about how prudently the organization is being run, they said.
“If I were an NRA member paying my dues, I’d wonder why all this money was being paid into companies controlled by NRA insiders or benefiting them,” said Elizabeth J. Kingsley, a Washington lawyer specializing in nonprofit law.
In one previously unreported arrangement, an NRA fundraising consultant, McKenna & Associates, late last year hired as a new senior adviser the wife of NRA executive Josh Powell. McKenna had been paid $2.6 million by the NRA over the previous two years.
A few weeks after his wife’s hiring, Mr. Powell signed an extension of the firm’s contract with the NRA.
Mr. Powell, the NRA’s third-highest executive, said McKenna has worked for the NRA for about seven years. His wife was hired after she met McKenna’s owner socially at an NRA fundraiser, Mr. Powell said, and the owner hired her because of her consulting skills.
Mr. Powell said he disclosed the matter to other executives and the audit committee, which approved the contract extension with McKenna as in the best interest of the NRA. He said his wife is a McKenna contractor and “works on some NRA business and some other projects.”
Mr. Powell’s wife, Colleen Gallagher, didn’t return calls seeking comment. Toby Merchant, a lawyer for McKenna, said, “Colleen is not a project leader for the NRA account, nor was McKenna’s continued engagement with the NRA in any way contingent upon working with Colleen.”
Mr. Powell, the NRA’s executive director of general operations, said in an interview in September he is confident officials are “making prudent decisions with members’ money. I think about it every day.”
In a November tax filing, the NRA Foundation, which is controlled by the NRA board and sends most of its money to the NRA, disclosed for the first time a longstanding arrangement under which it buys millions of dollars in products from Crow Shooting Supply. That company is controlled by Pete Brownell, CEO of an Iowa gun retailer who was a longtime NRA director and NRA president from 2017 to early 2018.
The money—$3.1 million in 2017—went to buy ammunition and other supplies that the foundation donated to local shooting groups, a person familiar with the transaction said.
The NRA Foundation has been buying from Crow Shooting Supply since 2008, according to people familiar with the matter. The NRA, in a written statement, said the company provides goods and services at a discount, “in support of the Foundation’s educational programming.”
Mr. Brownell’s family company didn’t own Crow in the early years of its NRA contract, but purchased the supplier in 2011, when Mr. Brownell was on the NRA board and his father was CEO of the family company and president of the NRA Foundation.
IRS regulations around disclosures of “transactions with interested persons” are complex, but in general require disclosure of dealings with current or former officers, directors and their family members, or companies at least 35% controlled by them.
The NRA Foundation didn’t disclose the contract with the Brownells’ company until this year. The NRA said it made “additional disclosures” this year “to provide greater visibility” into the foundation’s activities.
The NRA also disclosed in its tax filing a complicated arrangement involving a longtime outside vendor and a former NRA official who retired about three years ago. The NRA paid the official nearly $1 million over two years after his retirement, the group disclosed. The money wasn’t paid directly by the NRA, but by the outside vendor, Lockton Affinity LLC, an insurance broker that arranged and managed NRA-branded insurance products.
The NRA said in the tax filing that it “inadvertently” failed to disclose the arrangement and a portion of the compensation in a prior year. In a statement to the Journal, the NRA said the former executive had been closely involved with Lockton while working at the NRA, and, after he retired, “the NRA wished to continue to utilize him in a consulting capacity.”
A spokeswoman for Lockton Affinity, which severed ties with the NRA earlier this year, declined to comment.
The NRA in 2017 saw a 21% decline in member dues and contributions, to $230 million, according to its financial filings. That is the lowest level since 2012. The NRA has run at a deficit for the past two years, its financial filings show.
In 2016, the NRA disclosed for the first time it was using an outside fundraising firm, HWS Consulting, and paid it $685,000 that year. The contract with HWS recently was extended to 2023, state filings show.
According to filings with state charities regulators, HWS Consulting is owned by H. Wayne Sheets, executive director of the NRA Foundation.
Like all nonprofits, the NRA Foundation is supposed to list all of its officers and their compensation in annual tax filings. Mr. Sheets was not listed in many recent foundation filings, even though he had been both an executive director and an officer since at least 2010.
After investigators contacted the NRA about the issue in September, the group said it “inadvertently omitted” Mr. Sheets from prior year filings. It included him, and his 2017 pay of $710,000 through HWS Consulting, in the NRA Foundation’s just-filed 2017 tax reports.
Mr. Sheets didn’t respond to calls seeking comment. Mr. Brewer, the NRA lawyer, said Mr. Sheets left the NRA as an employee in 2008 while continuing with the NRA Foundation and as a fundraiser through his own company. Mr. Brewer said the arrangement had been “properly vetted at the audit committee.”Go back